No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
Corporate Compliance Insights
Home Featured

7 Steps to Jump Start Your Anti-Fraud Program

by Peter Millar
August 16, 2018
in Featured, Fraud
7 Steps to Jump Start Your Anti-Fraud Program

Data analysis techniques and tips for detecting and preventing fraud

Updated: 2018

Fraud, whether it occurs in the form of carefully crafted ponzi scams, fudging financial reports or theft from one’s own employer, is reaching alarming proportions and is not without its costs. Businesses and government agencies worldwide suffer hundreds of billions in lost or misused funds, diminished value, and irreversible damage to company reputation and customer trust.

Consider the alarming stats from the 2010 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners (ACFE). According to the study, organizations worldwide lose an average of five percent of revenues to fraud each year for an average of $160,000. Applied to the estimated 2009 Gross World Product, this figure translates to a potential total fraud loss of more than $2.9 trillion.

Making matters worse (and no thanks to the economic downturn), many organizations have been forced to cut staff, freeze spending and skimp internal control and process assurance, which has left organizations more vulnerable to risk and fraud.

The focus on fraud detection and prevention is shifting increasingly to internal audit departments. PricewaterhouseCoopers’s Internal Audit 2012 survey reports that “Although antifraud roles vary in business today, top management generally owns the antifraud responsibility, the audit committee oversees antifraud efforts, and internal audit provides a critical line of defense against the threat of fraud by focusing on risk monitoring in addition to fraud prevention and detection.”

Now is the time for Internal Audit teams to step up fraud prevention and detection measures.  However, knowing where to start can be overwhelming.

Here is a quick list of priorities to kick start your program.

1. Build a profile of potential frauds.

Take a top-down approach to your risk assessment, listing the areas in which fraud is likely to occur in your business and the types of fraud that are possible in those areas. Then qualify the risk based on the overall exposure to the organization.  Focus on risks that have the greatest chance of reducing shareholder value — for example, processes that affect the extended supply chain such as safety, quality, reliability of suppliers and processes.

Develop fraud risk profiles as part of an overall risk assessment and include necessary stakeholders and decision makers. You’re not likely to make friends throughout the organization by conducting this on your own. For example, if you think fraud is happening with purchasing cards, include the p-card manager in the discussions. That way it’s a joint effort that will benefit both parties and hopefully result in a more comprehensive approach to fraud risks in that area.

2. Test transactional data for possible indicators of fraud.

You must test 100 percent of the data, not just random samples.  While sampling may be effective for detecting problems that are relatively consistent throughout data populations, that isn’t always the case for fraud. Fraudulent transactions, by nature, do not occur randomly. Transactions may fall within boundaries of certain standard testing and not be flagged. Further, using the sampling approach, you may not be able to fully quantify the impact of control failures and you may not be able to estimate within certain populations. You could miss many smaller anomalies and sometimes it’s the small anomalies that add up over time to result in very large instances of fraud.

In order to effectively test and monitor internal controls, organizations need to analyze all relevant transactions.

Read: Top Tips for Deterring Fraud: A Guide for Audit Committees

3. Improve controls by implementing continuous auditing and monitoring.

Strengthen controls over transaction authorizations and use continuous auditing and monitoring to test and validate the effectiveness of your controls. Repetitive or continuous analysis for fraud detection means setting up scripts to run against large volumes of data to identify those anomalies as they occur over a period of time. This method can drastically improve the overall efficiency, consistency and quality of your fraud detection processes. Create scripts, test the scripts and run them against data so you get periodic notification when an anomaly occurs in the data.

You can run the script every night to go through all those transactions for timely notification of trends and patterns and exceptions reporting that can be provided to management. For example, this script could run specific tests against all purchasing card transactions as they occur to ensure they are in accordance with controls.

4. Communicate the monitoring activity throughout the organization.

A big part of fraud prevention is communicating the program across the organization. The old adage, “an ounce of prevention equals a pound of cure” rings true for fraud detection. If everyone knows there are systems in place that alert to potential fraud or breach of controls, and that every single transaction running through your systems is monitored, you’ve got a great preventative measure. It lets people know that they shouldn’t bother, because they will get caught.

5. Provide management with immediate notification when things are going wrong.

It is better to raise any issues right away than explain why they occurred later. Create audit reports with recommendations on how to tighten controls or change processes to reduce the likelihood of recurrence.  And, don’t forget to quantify the impact to the business. Data analysis technology can quantify the impact of fraud so you can actually see how much it’s costing the organization and provide a cost-effective program with immediate returns.

6. Fix any broken controls immediately.

Segregation of duties is important. If you can initiate a transaction, approve the transaction, and also be the receiver of the goods from the transaction, there is a problem.

7. Expand the scope and repeat.

Re-evaluate your fraud profile, taking into account both the most common fraud schemes and those that relate specifically to the risks that are unique to your organization, and move your investigative lens.   Use analytics to find out where controls are not working or are ineffective and don’t forget to look for controls that cannot be governed by application control settings. Investigate patterns and fraud indicators that emerge from the fraud detection tests and continuous auditing and monitoring.

Summary

Fraud is a significant business risk that must be mitigated. A well-designed and implemented fraud detection system, based on the transactional data analysis of operational systems, can significantly reduce the chance of fraud occurring within an organization. The sooner that indicators of fraud are available, the greater the chance that losses can be recovered and control weaknesses can be addressed. The timely detection of fraud directly impacts the bottom line, reducing losses for an organization. And effective detection techniques serve as a deterrent to potential fraudsters – employees who know that experts are present and looking for fraud or that continuous monitoring is occurring are less likely to commit fraud because of a greater perceived likelihood that they will be caught.

Given increased regulatory requirements and compliance demands, the decision is no longer if an organization should implement a complete fraud detection and prevention program, but rather how quickly that program can be put into place. The use of technology is essential for maximizing the efficiency and effectiveness of a fraud detection and prevention program.

Typical Types of Fraud and Fraud Tests

Knowing what to look for is critical in building a fraud detection program. The following examples are based on descriptions of various types of fraud and the tests used to discover the fraud as found in Fraud Detection: Using Data Analysis Techniques to Detect Fraud.1

Type of fraud: Fictitious vendors
Tests used to discover this fraud:

  • Run checks to uncover post office boxes used as addresses and to find any matches between vendor and employee addresses and/or phone numbers
  • Be alert for vendors with similar sounding names or more than one vendor with the same address and phone number

Type of fraud: Altered invoices
Tests used to discover this fraud:

  • Search for duplicates
  • Check for invoice amounts not matching contracts or purchase order amounts

Type of fraud: Fixed bidding
Tests used to discover this fraud:

  • Summarize contract amount by vendor and compare vendor summaries for several years to determine if a single vendor is winning most bids
  • Calculate days between close for bids and contract submission date by vendor to see if the last bidder consistently wins the contract

Type of fraud: Goods not received
Tests used to discover this fraud:

  • Search for purchase quantities that do not agree with contract quantities
  • Check if inventory levels are changing appropriate to supposed delivery of goods

Type of fraud: Duplicate invoices
Tests used to discover this fraud:

  • Review for duplicate invoice numbers, duplicate date, and invoice amounts

Type of fraud: Inflated prices
Tests used to discover this fraud:

  • Compare prices across vendors to see if prices from a particular vendor are unreasonably high

Type of fraud: Excess quantities purchased
Tests used to discover this fraud:

  • Review for unexplained increases in inventory
  • Determine if purchase quantities of raw materials are appropriate for production level
  • Check to see if increases in quantities ordered compare similarly to previous contracts or years or when compared to other plants

Type of fraud: Duplicate payments
Tests used to discover this fraud:

  • Search for identical invoice numbers and payments amounts
  • Check for repeated requests for refunds for invoices paid twice

Type of fraud: Carbon copies
Tests used to discover this fraud:

  • Search for duplicates within all company checks cashed; conduct a second search for gaps in check numbers

Type of fraud: Duplicate serial numbers
Tests used to discover this fraud:

  • Determine if high value equipment a company already owns is being repurchased by checking serial numbers for duplicates and involvement of same personnel in purchasing and shipping processes

Type of fraud: Payroll fraud
Tests used to discover this fraud:

  • Find out if a terminated employee is still on payroll by comparing the date of termination with the pay period covered by the paycheck and extract all pay transactions for departure date less than date of current pay period

Type of fraud: Accounts payable
Tests used to discover this fraud:

  • Reveal transactions not matching contract amounts by linking Accounts Payable files to contract and inventory files and examining contract date, price, ordered quantity, inventory receipt quantity, invoice quantity, and payment amount by contract

 

1 Coderre, David G., Fraud Detection: Using Data Analysis to Detect Fraud, 2nd edition (Vancouver, BC: Ekaros, 2004)

 


Tags: Monitoring
Previous Post

A New Way of Thinking About Ethics and Culture

Next Post

GDPR: Where to After May 25?

Peter Millar

Peter Millar

Peter Millar is the Director of Technology Application at ACL Services Ltd. For the past 12 years, Peter has been involved in the evolution of analytic solutions for audit departments in industry and government. His combination of experience and expertise has helped audit departments in some of the world’s leading organizations to create value-added opportunities by implementing efficient and sustainable audit analytics solutions. He has more than 18 years experience in the high tech industry in various software and systems integration companies. Peter sits on the Advanced Technology Committee of The Institute of Internal Auditors (The IIA) and was a co-author of the “Global Technology Audit Guide (GTAG)-13 – Fraud Prevention and Detection in an Automated World.” Peter can be reached at peter_millar@acl.com or on Twitter @PBMillar. Additional commentary by Peter can be found at ACL Services’ Business Assurance Blog at: www.acl.com/blog.

Related Posts

DOJ increasing monitorships

DOJ Signals Expanded Use of Independent Monitors for Corporate Criminal Enforcement

by Womble Bond Dickinson
June 8, 2022

The DOJ indicates that it will increase the use of monitors in corporate criminal enforcement; what does that mean for...

Demonstrators protest outside amazon investment firm

Employee Surveillance Can Turn Your Office Dystopian If You Don’t Reciprocate Transparency and Security

by Rob Shavell
December 7, 2021

Demonstrators protest outside amazon investment firm Remote employee monitoring is ubiquitous — and likely here to stay. However, using monitoring...

high-voltage power lines with sunset in the background

IPKeys Power Partners Announces New Grid Cybersecurity Breakthrough

by Corporate Compliance Insights
September 8, 2021

Addresses multibillion-dollar cybersecurity convergence challenges of Critical Infrastructure Protection (CIP) & compliance facing utilities & grid operators Tinton Falls, NJ...

sparkles grey background with a winners cup

Eventus Systems Wins Trade Surveillance Product of the Year in 2021 Risk Technology Awards

by Corporate Compliance Insights
July 27, 2021

AUSTIN, Texas and LONDON (July 27, 2021) – Eventus Systems, Inc., a leading global provider of multi-asset class trade surveillance and...

Next Post
GDPR concept: EU flag and padlock

GDPR: Where to After May 25?

Compliance Job Interview Q&A

Jump to a Topic

AML Anti-Bribery Anti-Corruption Artificial Intelligence (AI) Automation Banking Board of Directors Board Risk Oversight Business Continuity Planning California Consumer Privacy Act (CCPA) Code of Conduct Communications Management Corporate Culture COVID-19 Cryptocurrency Culture of Ethics Cybercrime Cyber Risk Data Analytics Data Breach Data Governance DOJ Download Due Diligence Enterprise Risk Management (ERM) ESG FCPA Enforcement Actions Financial Crime Financial Crimes Enforcement Network (FinCEN) GDPR HIPAA Know Your Customer (KYC) Machine Learning Monitoring RegTech Reputation Risk Risk Assessment SEC Social Media Risk Supply Chain Technology Third Party Risk Management Tone at the Top Training Whistleblowing
No Result
View All Result

Privacy Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2022 Corporate Compliance Insights

No Result
View All Result
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe

© 2022 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT